In this blog post I explain five key issues in the context of your competition as an accountant. I have discussed them many times with clients during mentoring sessions.
Often I find an accountant’s perception as to who is their competition is blinkered and limited. They are often shocked to realise they have been focused on only one type of competitor and that, as the world changes, so the nature of their competition is evolving too. Over time we often discuss how they can address these key issues.
The five key issues are based on Michael Porter’s ‘five forces model’. It was first published in a 1979 article in the Harvard Business Review and is a framework for analysing a business’s competitive environment. The number and power of each element of the five forces can have a clear impact on your profitability.
Whilst I have adapted the model to consider the five forces in the context of accountants, this might also inspire you to assist those of your clients who would benefit from considering these forces when you help them with their future plans.
How will these five forces specifically affect the future strategy for your practice?
1 – Competition
You probably consider your competition currently to be largely those accountants in the same locality or those with the same specialist focus as you.
It is these competitors who you may consider are setting ‘the going rate’ for compliance services (although often there is no such ‘going rate’ in reality).
Your competitors may be qualified or unqualified, in smaller or larger practices and some may have bigger marketing budgets than you.
There’s also those firms that might look to merge with or take over your practice.
NB: You may think (mistakenly I would suggest) that you are competing with accountants all around the UK when a prospective client searches online for a new accountant. I think this is mistaken as most people look for an accountant local to them or who specialises in a particular niche.
2 – New Entrants
You should also assess the potential competition you face from bookkeepers, from new digital focused, home based sole practitioners and from those unqualified ‘accountants’ entering the marketplace to compete with you as regards the compliance services you provide to clients.
For as long as you focus on compliance work so you will continue to be susceptible to new entrants who will quote lower fees – even if they don’t really have the skills, training and knowledge to do all the required work. Indeed, are there any barriers to prevent this happening?
It seems to me that it is only going to get easier for new entrants and thus you will face more competition – not perhaps when it comes to keeping your existing clients, but certainly when you try to win new clients in the future.
Your competition for other areas of work is already wider than just other accountants. And the range of such competitors will only grow as it becomes easier for them to obtain access to clients’ financial data through new tech, apps and software.
Depending on the type of advisory work you offer in the future your competition may also include financial advisers, business coaches and management consultants.
3 – End Users/ Buyers
Historically few clients would choose to stop paying an accountant and start preparing their own accounts and tax returns. This is set to change to some extent over the next few years.
Some of your clients (perhaps) and certainly some of those who would otherwise be prospective clients will attempt this. At present such people later find they do need an accountant after all. But this won’t always be the case – although you are probably safe until MTD for income tax has become fully established.
So even if all your existing clients choose to stay with you, at some stage you will start to find it more difficult to pick up new clients once more people think they can do without the services of an accountant on a day to day basis.
We can already see adverts almost daily in the media, on buses, trains and billboards encouraging small business owners to go the DIY route. We know that such adverts understate what is really involved but the impact of this trend is only going to increase as the technology becomes more advanced, with the advent of 5G connectivity, more machine learning and increasingly accurate AI.
What will happen once clients and prospective clients are able to use cloud based software to produce accounts and to file tax returns directly with HMRC with minimal input from an accountant? Whilst it’s not yet possible it will happen within the next ten years – possibly sooner.
And let’s not forget the increasing bargaining power of clients and prospects as they become less loyal, more aware of the low cost of switching and require less and less input from their accountants.
4 – Suppliers
Will you be materially affected by the bargaining power of software suppliers? Probably not.
This may be more relevant to some of your clients when they assess their own competitive forces. For example when supplies of one or more elements in the supply chain diminish and the price goes up, or when a supplier has such a large share that it can dictate the terms of the deal.
5 – Substitutes
The 5th of the original five competitive forces is also less relevant in the context of an accountant’s traditional compliance services.
This is because clients typically appoint accountants to enable them to satisfy their legal filing obligations. There is no substitute for this – other than those already referenced above.
However when it comes to advisory services, there are plenty of substitute solutions available – from clients having direct access to advisory software, to management consultants and business coaches. Clients may start to believe that any of these may offer a better, cheaper or more experienced service than you. And this may then reduce the demand for you to provide such services.
So today’s challenge is to consider how many of these 5 competitive forces are likely to have an impact on your practice over the next few years – and what are you going to do about it?
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